OPEC+ prepares for weekend meeting after Saudi warns speculators to ‘watch out’

Led by Saudi Arabia and Russia, OPEC+ agreed in early October to reduce production by 2 million barrels per day from November.

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The OPEC+ alliance of oil producers will decide further production policy steps over the weekend, as crude prices reflect an ongoing struggle between supply-demand fundamentals and broader macro-economic concerns.

After convening remotely throughout the Covid-19 pandemic, OPEC+ has returned to in-person meetings and will gather in Vienna on June 4. The OPEC ministers gather for a separate meeting unlikely to address output on June 3.

Ministers face an oil market rattled by supply volatility, demand uncertainty, and a prospective recession, which could throttle transport fuel consumption. Since October, OPEC+ — a 23-member alliance including heavyweights Russia and Saudi Arabia — has lowered output by 2 million barrels per day in an effort to combat lower demand. Some members have also announced additional voluntary cuts totaling 1.6 million barrels per day in April.

Group members are expected to coagulate their individual positions and proposals in the 24-48 hours before the meeting, some OPEC+ delegates told CNBC, speaking on condition of anonymity — while public comments so far have been conflicting.

On May 23, Saudi energy minister Prince Abdulaziz bin Salman warned oil market speculators they could face further pain ahead, in comments some have read as hinting further supply cuts could be in the cards.

“I keep advising [speculators] that they will be ouching. They did ouch in April. I don’t have to show my cards, I’m not [a] poker player … but I would just tell them, watch out,” he said at the time.

Russia’s Deputy Prime Minister Alexander Novak later indicated that he expected no further steps from the OPEC+ meeting, but then said his comments were misinterpreted as downplaying an output cut, according to Russian state news agency Tass.

Russia and Saudi Arabia have been united in their public OPEC+ stance since a March 2020 dispute that led to the one-month dissolution of their oil partnership and an ensuing price war.

Moscow and Riyadh later mended ties through a new OPEC+ agreement to respond to a demand plunge driven by the Covid-19 pandemic — and have remained like-minded on OPEC+ matters since. Voiding the perception of a public rift, Saudi Foreign Minister Prince Faisal bin Farhan al-Saud and his Russian counterpart Sergey Lavrov on Thursday met on the sidelines of a BRICS summit in Cape Town.

The two reviewed the cooperation between their countries and “ways to strengthen & develop them in all fields, in addition to discussing the consolidation of bilateral & multilateral action,” according to the Saudi foreign ministry.

Two OPEC+ delegates, who did not want to be named due to the market sensitivity of the meeting, told CNBC that further output cuts were unlikely this weekend. One noted that this will remain the case unless demand stays low in China — where recovery has fallen short of expectations, in the wake of shedding strict Covid-19 restrictions.

A third source said that OPEC+, which prioritizes the state of global inventories over outright prices, would be comfortable with futures above $75 per barrel, while a fourth estimated near $70-80 per barrel.

Brent futures with August expiry were trading at $75.70 per barrel at 10:24 a.m. in London, up $1.42 per barrel from the Thursday settlement.

The OPEC+ group isn’t “after spikes” and seeks a “balanced market,” the fourth delegate told CNBC, stressing that the alliance must continue to strike a “precautionary” production strategy. Deep cuts also risk re-attracting U.S. ire, as Washington has historically criticized supply reductions that pile strain on consuming households.

‘Wait and see’?

Goldman Sachs’ analysts expect OPEC+ to keep production unchanged this weekend. However, they said in a note Wednesday that they see a “sizeable 35% subjective probability” of further OPEC cuts, as oil prices are “clearly below our $80-85/bbl estimate of the OPEC put. Very low positioning, the Saudi determination not to give speculators free rein, and the decision to meet in person also suggest that deeper cuts will likely be discussed.”

OPEC+ has waded stormy waters for the better part of the year. Oil markets have historically been steered by physical supply and demand fundamentals — which have been increasingly overshadowed by broader macro-economic concerns over the fuel consumption impact of high inflation, bolstering interest rates and the spring collapse of several U.S. and European banks.

OPEC+ delegates also said the group had been following U.S. debt ceiling negotiations, as the proposal of President Joe Biden and House Speaker Kevin McCarthy transited several debate and vote stages in a bid for the world’s largest economy to avoid defaulting on its bills.

“The impact of higher oil prices on the global economy will weigh heavily on the ministers’ minds,” Jorge Leon, senior vice president of oil market research at Rystad Energy, said in a Thursday note, adding that OPEC+ could maintain production as a precaution. “The ministers might therefore take a ‘wait and see’ approach and hold off taking any action. Demand forecasts remain lukewarm at best, so maintaining current output could be the most prudent course. “

Supply is also under question, given involuntary declines.

Roughly 450,000 barrels per day of northern Iraqi exports were frozen by a legal dispute between Baghdad, Ankara, and the Kurdistan Regional Government. Nigeria, typically West Africa’s largest oil producer, self-reported its April crude production at just 999,000 barrels per day following disruptions, according to OPEC’s Monthly Oil Market Report for May.

Meanwhile, the true extent of Russian output losses remains unclear, as vessels carrying Moscow’s crude turn off their satellite tracking and Russia looks to further shift its clientele east.

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Turkey’s runoff election is paralyzing key oil exports from northern Iraq

A satellite image showing the port of Ceyhan centred on August 18, 2015 in Turkey.

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Turkey’s runoff election is compounding delays to restart roughly 450,000 barrels per day of Iraqi crude oil exports, as Ankara studies its relationship with Baghdad, analysts and market sources told CNBC.

Oil typically flows through Turkey from both the Iraqi state and the semi-autonomous Kurdistan Regional Government (KRG). More specifically, this Kirkuk crude flows down the Iraq-Turkey Pipeline linking the north of the Gulf country with Turkey’s Ceyhan port in the Mediterranean. But the flows have been paralyzed since March 25 by a legal dispute involving federal Iraq, the KRG and Turkey.

Resolution pends on the result of a second presidential vote this weekend, but a prolonged halt could reduce Iraqi crude production.

The KRG had previously trucked its crude exports across borders, until it linked its major oil-producing fields to the Iraq-Turkey pipeline and began shipping crude in 2014. Federal Baghdad denounced Erbil’s independent crude sales as illegal, threatening to ban customers of such supplies from purchasing Iraq’s larger Basra crude volumes.

After a nine-year suit, the International Chamber of Commerce’s Court of Arbitration in Paris found that Turkey violated the 1973 version of a pipeline transit agreement between Baghdad and Ankara over 2014-2018. Turkey was ordered to pay Iraq roughly $1.5 billion in damages, according to Reuters. A second arbitration suit covering 2018 to date is still ongoing.

The ICC verdict followed a domestic win for Baghdad, after Iraq’s federal court in February 2022 pronounced the KRG’s oil and gas legislation unconstitutional and invalidated its contracts with foreign firms. This decision led to U.S. companies deciding to exit contracts in Kurdistan and deterred some KRG oil buyers from further purchases.

Iraq’s oil minister Hayan Abdul-Ghani on May 23 said that Baghdad has informed Turkey it is able to restart flows through Ceyhan and awaits Ankara’s response.

“Our colleagues in Turkey said there are some evaluative issues that they have to take into account. And that resulted from the earthquake,” he said, noting that an Iraqi delegation will be sent at an unspecified time to Turkey to discuss the restart.

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Kirkuk crude is exported from the Botas terminal at Ceyhan in southern Turkey, separate from Azeri crude flows shipped out from the nearby Baku-Tblisi-Ceyhan port terminal. Botas resumed loadings the day after the devastating earthquake of Feb. 6 that killed at least a combined 50,000 people in Turkey and Syria, according to the U.N. The BTC terminal suffered a longer outage.

Several trade, shipping and oil producing sources — who could only comment anonymously because of contractual obligations — told CNBC that, following a request from Baghdad, Ankara was widely expected to resume Kirkuk crude exports from Ceyhan on May 13 — a day before presidential elections in Turkey, whose inconclusive first round on May 14 stymied the oil’s resumption.

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Winner talks all

An Erdogan loss in the presidential battle could prolong the oil stalemate, traders warn, with Kilicdaroglu likely to require independent negotiations with Iraq — in a diplomatic point unlikely to enjoy pride of place on the new leader’s agenda.

Third-party candidate Sinan Ogan’s Monday endorsement of Erdogan has strengthened Erdogan’s position as Turks head to the polls.

Domestically, Erdogan has enjoyed a tumultuous relationship with Turkey’s largest ethnic minority, which typically accounts for 15-20% of the Turkish population. While Erdogan has had frequent rapprochement with KRG Prime Minister Masrour Barzani, Wahab signals Turkey could still prioritize securing benefits from the oil export stalemate.

“I don’t think a victorious Erdogan would have any qualms about using the KRG as a leverage to get a good deal out of Baghdad: favourable terms for doing business in Iraq, dropping the fine that Turkey has to pay, or dropping some of the demands that Iraq has with regard to water [from the Euphrates] and Turkish military presence in Iraq,” he said.

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Norway faces backlash from campaigners for ‘reckless’ pursuit of Arctic oil and gas

A view of fjords as they melt due to climate change near Svalbard Islands, in the Arctic Ocean in Norway on July 19, 2022.

Anadolu Agency | Anadolu Agency | Getty Images

The Norwegian government is calling on energy giants to ramp up oil and gas exploration projects in remote regions like the Arctic Barents Sea, defying a sense of palpable frustration among climate campaigners as the Nordic country seeks to shore up its position as Europe’s largest gas supplier.

The rethink in strategy comes as Norway strives to keep up with growing demand for its energy exports in the wake of Russia’s full-scale invasion of Ukraine.

Norway last year overtook Russia as Europe’s biggest natural gas supplier and says it is now seeking to maintain Europe’s energy security by exploring the Barents Sea for further resources.

Speaking in the town of Hammerfest late last month, Norway’s Petroleum and Energy Minister Terje Aasland reportedly said that the industry should “leave no stone unturned” in their pursuit for fresh hydrocarbon discoveries in the Barents Sea.

Aasland even described this policy as the oil and gas industry’s “social responsibility,” according to Bloomberg, saying undiscovered resources could help to maintain the country’s future production levels.

Norway oil and gas giant Equinor and Vår Energi, one of the country’s largest exploration and production companies, confirmed to CNBC that the minister recently issued this call.

A spokesperson for Norway’s petroleum and energy ministry, meanwhile, said that the message to energy giants was “to explore all economic oil and gas resources within the available areas, including in the Barents Sea.”

Norway has pumped oil and gas from its continental shelf, a relatively shallow section of seabed off its coast, for more than 50 years and it currently has several oil and gas fields either in production or under development.

Oil drilling in the Arctic is like pouring gasoline on a fire.

Frode Pleym

Head of Greenpeace Norway

It is estimated that roughly two-thirds of the country’s undiscovered oil resources lies off the country’s northern coast in the Arctic’s Barents Sea. And yet, the desire among energy companies to explore the Barents Sea for oil and gas has been relatively subdued in recent years, in part due to high costs and limited opportunities to export gas to markets.

At the start of the year, however, Norway said it planned to offer energy firms a record number of oil and gas exploration blocks in the Arctic.

Environmental campaigners at Friends of the Earth Norway, WWF-Norway and Greenpeace Norway have described the country’s lobbying for continued oil and gas expansion as “embarrassing,” “extremely reckless” and “a middle finger to the Paris Agreement.”

“Oil drilling in the Arctic is like pouring gasoline on a fire,” Frode Pleym, head of Greenpeace Norway, told CNBC via email.

“Both Norway and the oil corporations need to stop cynically exploiting Russia’s war in Ukraine,” Pleym said. “The aggressive and greedy oil policy of Norway do not only consolidate Oslo’s position as a top energy supplier to Europe, it locks a whole continent into future dependency on fossil fuels. The alternative to oil and gas is not more oil and gas, it is more energy efficiency and renewable energy.”

The burning of fossil fuels, such as coal, oil and gas, is the chief driver of the climate crisis.

recently lamented the lack of exploration in the Barents Sea, saying its calculations show that such activity “is profitable in all ocean areas.”

Separately, a mid-April study from gas infrastructure operator Gassco said building a pipeline to transport gas produced in the Arctic Barents Sea could be worth re-examining due to the country stepping up its gas exports to Europe.

A spokesperson for Vår Energi described the Barents Sea as a strategic hub for oil and gas drilling, one that provides a “manageable, ice-free” part of the Arctic with weather and climate conditions like other parts of the Norwegian Continental Shelf.

It is for this reason, Vår Energi says, that the Barents Sea should not be compared to other Arctic regions characterized by harsher conditions, adding that the company abides by strict environmental regulations.

Climate campaign groups refute this logic, warning that any oil spill in this area would spell disaster to the rich but acutely vulnerable ecosystems and marine life.

‘A strong basis to lead on climate policy’

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